Westshore Terminals Income Fund - 2007 second quarter report



    VANCOUVER, Aug. 2 /CNW/ - Westshore Terminals Income Fund (TSX: WTE.UN)
announced today its earnings for the second quarter ending June 30, 2007. 
Please see attached Report to Unitholders for details.

    Westshore Terminals Income Fund
    Second Quarter Report
    For the six months ended June 30, 2007
    -------------------------------------------------------------------------

    The earnings and distributable cash of Westshore Terminals Income Fund
(the "Fund") are wholly dependent on the results of Westshore Terminals
Limited Partnership ("Westshore"). Westshore's results are determined largely
by the volume of coal shipped by its coal mine customers for sale in the
export market, the U.S. dollar denominated price received by Westshore's
customers for coal, the Canadian-U.S. dollar exchange rate and Westhore's
costs. Westshore's throughput charges for approximately half of the coal it
handles are calculated at present by reference to coal prices (see particulars
under "Outlook" section on page 7). Lower prices for hard coking coal resulted
in Elk Valley Coal Partnership (the "Coal Partnership"), which is Westshore's
principal customer, achieving lower average settlement prices for the 2007/08
coal year compared to the 2006/07 coal year. The weighted average price of
2007 calendar year coal sales by the Coal Partnership is expected to be
approximately US$96 per tonne, down approximately 15% from US$113 in 2006. As
Westshore has some exposure to fluctuations in exchange rates (as a result of
pricing mechanisms under its customer contracts), Westshore engages in
periodic currency hedging arrangements to provide partial shielding from
material short-term swings in the CDN/US dollar exchange rate.

    
    Westshore Terminals Income Fund
    -  Management's Discussion and Analysis of Financial Condition
       and Results of Operations
    

    This management's discussion and analysis refers to certain measures
other than those prescribed by Canadian Generally Accepted Accounting
Principles ("GAAP"). These measures do not have standardized meanings and may
not be comparable to similar measures presented by other trusts or
corporations. They are determined by reference to the Fund's financial
statements. These non-GAAP measures are discussed because the Fund believes
that they provide investors with information in understanding the results of
the Fund's operations and financial position. The unaudited financial results
along with management's discussion and analysis contained in this report
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Fund's Annual Report for the year
ended December 31, 2006. The date of this management's discussion and analysis
and results of operations is August 2, 2007.
    The following table sets out selected consolidated financial information
for the Fund for the quarter ended June 30, 2007. As at August 2, 2007, the
Fund has 74,250,016 issued and outstanding trust units.

    
    -------------------------------------------------------------------------
    (In thousands of dollars                       Three Months  Three Months
     except per unit amounts)                          Ended         Ended
                                                      June 30,      June 30,
                                                        2007          2006
                                                         $             $
    -------------------------------------------------------------------------
    REVENUE
      Coal                                              45,790        41,583
      Other                                              2,370         2,869
    -------------------------------------------------------------------------
                                                        48,160        44,452
    EXPENSES
      Operating                                         17,906        15,256
      Administrative                                     1,583         2,577
    -------------------------------------------------------------------------
                                                        19,489        17,833
    -------------------------------------------------------------------------
    Earnings before depreciation and income taxes       28,671        26,619
    Depreciation                                         5,552         5,404
    -------------------------------------------------------------------------
    Earnings before income taxes                        23,119        21,215
    Provisions for income taxes                         (6,589)(1)         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings for the period                         16,530        21,215
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per trust unit                          0.223         0.301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributable Cash(2)                               24,040        19,275
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributions declared                              18,563        19,003
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributions declared per trust unit                0.250         0.270
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following tables set out selected consolidated financial information
for the Fund on a quarterly basis for the last eight quarters.

    -------------------------------------------------------------------------
    (In thousands of                       Three Months Ended
     dollars except     -----------------------------------------------------
     per unit amounts)     June 30,      Mar 31,       Dec 31,       Sep 30,
                            2007          2007          2006          2006
                             $             $             $             $
    -------------------------------------------------------------------------
    Revenue
      Coal                  45,790        36,553        41,067        36,741
      Other                  2,370         1,058        (1,212)        1,184
    -------------------------------------------------------------------------
                            48,160        37,611        39,855        37,925
    Expenses
      Operating             17,906        17,113        16,287        17,980
      Administration         1,583         1,947         2,700         1,857
    -------------------------------------------------------------------------
                            19,489        19,060        18,987        19,837
    -------------------------------------------------------------------------
    Earnings before
     depreciation and
     income taxes           28,671        18,551        20,868        18,088
    Depreciation             5,552         5,553         5,470         5,405
    -------------------------------------------------------------------------
    Earnings before
     income taxes           23,119        12,998        15,398        12,683
    Recovery of
     (provision for)
     income taxes           (6,589)(1)         -             -             9
    -------------------------------------------------------------------------
    Net earnings for
     the period             16,530        12,998        15,398        12,692
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per
     trust unit              0.223         0.175         0.219         0.180
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions
     declared(2)            18,563        19,305(3)     23,578        21,818
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions
     per unit                0.250         0.260(3)      0.335         0.310
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of
     units in lieu of
     cash                        -             -         6,194             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of
     units in lieu of
     cash per unit               -             -         0.088             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Non-cash tax provision recorded as a result of change in tax laws
        for income trusts. Refer to page 5.
    (2) Refer to page 6 for a comparison of cash distributions to
        distributable cash.
    (3) Includes an extraordinary distribution of $0.035. Refer to page 6.



    -------------------------------------------------------------------------
    (In thousands of                       Three Months Ended
     dollars except per -----------------------------------------------------
     unit amounts)        Jun 30,       Mar 31,       Dec 31,       Sep 30,
                            2006          2006          2005          2005
                             $             $             $             $
    -------------------------------------------------------------------------
    Revenue
      Coal                  41,583        38,463        43,523        46,063
      Other                  2,869           858         1,898         4,190
    -------------------------------------------------------------------------
                            44,452        39,321        45,421        50,253
    Expenses
      Operating             15,256        15,739        16,436        16,762
      Administration         2,577         1,739         2,077         4,109
    -------------------------------------------------------------------------
                            17,833        17,478        18,513        20,871
    -------------------------------------------------------------------------
    Earnings before
     depreciation and
     income taxes           26,619        21,843        26,908        29,382
    Depreciation             5,404         5,405         6,224         5,728
    -------------------------------------------------------------------------
    Earnings before
     income taxes           21,215        16,438        20,684        23,654
    Recovery of
     (provision for)
     income taxes                -             -        42,267          (446)
    -------------------------------------------------------------------------
    Net earnings for
     the period             21,215        16,438        62,951        23,208
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net earnings per
     trust unit              0.301         0.234         0.894         0.330
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions
     declared(1)            19,003        20,410        27,097        26,745
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Distributions
     per unit                0.270         0.290         0.385         0.380
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of
     units in lieu of
     cash                        -             -         1,540             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distribution of
     units in lieu of
     cash per unit               -             -         0.022             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to page 6 for a comparison of cash distributions to
        distributable cash.
    


    Results of Operations

    In the second quarter of 2007, Westshore shipped 5.7 million tonnes of
coal, compared with 4.6 million tonnes shipped during the same period in 2006.
Based on information currently available, for 2007 Westshore is anticipating
shipping 19 to 20 million tonnes at a lower average loading rate than 2006.
    Coal loading revenue increased by 10.1% to $45.8 million in the second
quarter of 2007 from $41.6 million in the second quarter of 2006. The increase
in revenue was due to an increase in volumes offset by lower throughput rates,
which reflect the lower coal prices for the 2007/08 coal contract year
compared to the 2006/07 coal year. Lower rates in Q2 2007 reflect the lower
coal prices for the 2007/08 coal contract year compared to the 2006/07 coal
year. The average loading rate in the second quarter of 2007 was $7.36 per
tonne, compared to the average loading rate per tonne in the second quarter of
2006 of $8.02 per tonne. These average rates are before giving effect to rate
adjustments relating to the prior coal contract year. Holdover tonnage for the
prior year increased the rate in the second quarter of 2006 by a greater
amount than in the second quarter of 2007.
    Other revenue was $2.4 million in the second quarter of 2007 compared to
$2.9 million in the second quarter of 2006. Unrealized hedging gains were
$0.4 million in the three months ended June 30, 2007 and were immaterial in
the second quarter of 2006. Realized hedging gains in the second quarter of
2007 decreased by $1.2 million from the second quarter in 2006 (See "Currency
Fluctuations"). Interest income for the quarter increased by approximately
$0.3 million because the Fund has on hand the proceeds of the equity
financings undertaken to fund the equipment upgrade project (See "Equipment
Upgrade Project"). Train detention costs in the second quarter of 2007 were
$0.3 million as compared to $0.1 million in the second quarter of 2006.
    Operating expenses in the second quarter of 2007 increased by
approximately $2.7 million from 2006. This increase was primarily as a result
of higher shipment volumes. Administrative expenses decreased from
$2.6 million in 2006 to $1.6 million in 2007. As the Fund is expecting lower
cash distributions than the prior year, no incentive fee is being accrued in
2007.
    As a result of the foregoing, Westshore's earnings before depreciation
and income taxes increased to $28.7 million for the second quarter of 2007
compared to $26.6 million for the same period in 2006.

    Labour

    Labour agreements with all three locals of the International Longshore
and Warehouse Union (production/maintenance employees, clerical work-force,
and foremen) expired on January 31, 2007.
    Negotiations have concluded with the largest of the three locals, the
production and maintenance employees, and a collective agreement was ratified
on July 18, 2007, and remains in force and effect until January 31, 2011. This
agreement will form the basis for the other two agreements. Discussions have
commenced with the clerical work-force. Talks with the Foremen will not get
underway until late September.

    Contract Rate Review

    Under the contract that governs coal from the Elkview mine (the "Elkview
Contract"), the Coal Partnership gave notice on September 30, 2004 requesting
a review of the loading rate, with a view to changing the rate effective
April 1, 2005. The matter was heard before an arbitrator, as provided for in
the Elkview Contract, and a decision was made in favour of Westshore in July
2006 confirming that there would be no changes to the formula for determining
the loading rate which will remain in effect through the end of the contract
term on March 31, 2010. The Supreme Court of British Columbia granted the Coal
Partnership leave to appeal the arbitrator's decision to the Supreme Court of
British Columbia. Westshore appealed that decision and this appeal is expected
to be heard in early 2008.
    In late August 2006, the Coal Partnership sent notice to Westshore
requesting a review of the charges under the Port Services Contract that
governs coal from the Fording River, Greenhills and Coal Mountain mines,
effective April 1, 2007. Discussions concerning the possibility of a change in
rate commenced as provided for under the agreement. If the matter cannot be
resolved between the parties, the matter would be determined by arbitration,
likely to be held in late 2008.

    Equipment Upgrade Project

    Westshore is proceeding with the upgrade to its existing equipment
previously announced. The cost of the upgrade (to be spent over a two year
period) is anticipated to be approximately $49 million based on firm bids
received and negotiated this year. It is anticipated that the build out will
take approximately two years to complete. Funding for the upgrade has been
provided through $40 million in equity financing, which was completed in March
2007. The balance of the funds required will be sourced from Westshore's cash
on hand.

    Taxation on Trusts in Canada

    Bill C-52 Budget Implementations Act, 2007 which contains legislative
provisions to implement the proposals to tax publicly traded income trusts in
Canada became law on June 22, 2007. Under these rules, distributions declared
by the Fund after January 1, 2011 will be taxed at a rate of 31.5% and the
distributions will be treated as taxable dividends in the hands of
unitholders. Unitholders will be entitled to a dividend tax credit which will
give credit for the level of taxation incurred by the Fund.
    The Fund has not provided for current income taxes in 2007 as the income
of the Fund is distributed to and taxed in the hands of unitholders. The
future taxation of distributions makes relevant for accounting purposes the
timing differences between the recognition of certain assets and liabilities
for tax and accounting purposes. As a result, the Fund has provided for a
future income tax expense of $6.6 million as at June 30, 2007. This is a
non-cash item and is essentially a one time charge to set up the provision for
future taxes. The provision will vary in future to reflect changes in assets
and liabilities and their recognition for tax purposes. This future income tax
expense does not affect current distributions.

    Distribution Reinvestment Plan

    On April 5, 2007 the Fund announced a distribution reinvestment plan (the
"Plan"). Under the Plan, Canadian resident Unitholders will be able to
designate that all or a portion of the quarterly distributions payable on
their Fund Units be applied towards the purchase of existing Fund Units
through the facilities of the Toronto Stock Exchange at prevailing market
prices. No additional units will be issued from treasury under the Plan. The
first distribution to which the Plan was applicable was the distribution paid
on July 15, 2007. Unitholders should contact their brokers or Computershare
Investor Services Inc. if they wish to participate in the Plan. Additional
information on the Plan is also available on the Fund's website at
www.westshore.com.

    Currency Fluctuations

    Since April 1, 2003, the loading rates under most of Westshore's
long-term handling contracts have depended in whole or in part on the Canadian
dollar price realized for coal handled by Westshore. Since the contract price
for coal is set in U.S. dollars, the exchange rate affects the Canadian dollar
price and Westshore's loading rate. To mitigate the resulting risk, Westshore
has engaged in periodic hedging activities. In view of the continuing changes
in the value of the Canadian dollar relative to the US dollar, the exposure of
Westshore's revenues to such uncertainty and the amount of US dollar
pricing-based revenue that Westshore experiences, Westshore has adopted a
flexible policy under which it may hedge at the end of each year a portion of
its anticipated US dollar related revenues for the coming year, based on the
annual budget. Westshore will then continue to review the need and opportunity
for additional future hedging in respect of a portion of its revenue.
    In the financial statements, the effect of currency fluctuations is shown
as affecting coal loading revenues before taking into account the effect of
hedging activities, the financial effect of which is accounted for as other
revenue. As stated in the audited consolidated financial statements of the
Fund for the year ending December 31, 2006, because Westshore's hedging
transactions do not qualify for "hedge accounting", the value of Westshore's
forward exchange contracts must be "marked to market" at each period end. On
this basis, other revenue for the six months ended June 30, 2007 was reduced
by $1.0 million in unrealized losses on forward exchange contracts, compared
to unrealized losses of $1.8 million for the first six months of 2006.
Unrealized hedging gains or losses are non-cash items. The cash effect of the
hedging activities is recognized in other revenue as the forward exchange
contracts mature. For the first half of 2007, other revenue included a
realized gain of $2.1 million compared to a realized gain of $3.4 million for
the first six months of 2006.

    Liquidity and Capital Resources

    The Fund is obliged to distribute to Unitholders its cash inflows less
administrative costs of the Fund (and amounts, if any, which may be paid in
connection with any cash redemption of units). The Fund has no fixed
distribution requirements, distributions being solely a function of amounts
received by the Fund. Because the Fund's investment in Westshore is of a
passive nature, it is not anticipated that the Fund will require significant
capital resources to maintain its investment in Westshore on an ongoing basis.
Westshore's facility is a mature facility which does not require additional
periodic replacements of equipment. The cost of ongoing maintenance and
refurbishment of the equipment is well within Westshore's financial capacity
based solely on revenues less expenses without any need for financing. The
equipment upgrade is being funded entirely from equity and cash resources,
which will avoid any liquidity concerns with debt service. As a result, the
Fund does not anticipate any liquidity concerns with the ongoing operations of
Westshore.
    Westshore has in place with a Canadian chartered bank a $1 million
secured operating facility which, if required, can be utilized to meet working
capital requirements. This facility was not used during the second quarter and
remained undrawn at June 30, 2007. Westshore's distribution policy involves
leaving sufficient earnings before depreciation and unrealized gains or losses
on forward exchange contracts to cover cash requirements such as regular
capital expenditures and special pension contributions.

    Quarterly Distributions

    On July 15, 2007, the Fund distributed $18,562,504 ($0.25 per unit) in
cash for the second quarter of 2007 to Unitholders of record on June 30, 2007
as compared with $19,002,900 ($0.27 per unit) in cash for the second quarter
of 2006.

    Distributable Cash

    References to "distributable cash" are to cash available for distribution
to Unitholders in accordance with the distribution policies of the Fund. Cash
available for distribution is a useful financial measure as an indication of
the Fund's ability to make distributions. It is also a measure generally used
by income funds in Canada as an indicator of financial performance. As one of
the factors that may be considered relevant by investors is the cash available
to be distributed by the Fund relative to the price of the Units, the Fund
believes that distributable cash is a useful supplemental measure that may
assist investors to assess an investment in Units. The Fund's method of
determining cash available for distribution is derived from cash flows from
operations (a measure recognized under GAAP).
    The distributable cash of the Fund is solely comprised of distributions
from Westshore which are impacted by the operating results of Westshore. A
comparison of the operating results to cash distributions paid is as follows:

    
           Distributable Cash Reconciliation
           (In thousands of dollars)                  3 months ended June 30
    -------------------------------------------------------------------------
                                                          2007          2006
    -------------------------------------------------------------------------
    A   Cash flows from operating activities
         (distributable cash)                         24,040        19,275
    B   Net income excluding non-cash items           28,269        26,139
    -------------------------------------------------------------------------
    C   Actual cash distributions paid                18,563        19,003
    -------------------------------------------------------------------------
    D   Excess of cash flows from operating
         activities over cash distributions
         paid (A-C)                                    5,477           272
    -------------------------------------------------------------------------
    E   Excess of net income excluding non-cash
         items over cash distributions paid (B-C)      9,706(1)      7,136(1)
    -------------------------------------------------------------------------
    (1)  Net income excluding non-cash items is cash flow from operating
         activities adding back non-cash working capital changes. This
         measure is generally expected to exceed cash distributions paid as
         cash is required for such items as regular capital expenditures and
         discharge of previously accrued liabilities.
    

    Change in Accounting Policies

    The Canadian Institute of Chartered Accountants issued new accounting
rules on financial instruments, hedges and comprehensive earnings that will
require the Fund to account for derivatives and financial assets held for
trading or available for sale at fair values. Loans, receivables and
investments held to maturity will be measured at amortized cost using the
effective interest rate method. Other financial liabilities will be measured
at fair value or at amortized cost using the effective interest rate method.
The effective interest rate method establishes the discount rate which equates
the estimated future cash flows with the net carrying amount of the financial
asset or liability.
    Other comprehensive earnings is the method used to record revenues,
expenses, gains and losses on net financial assets that are not required to be
included in earnings. Foreign currency translation gains and losses on
self-sustaining foreign operations will be included in other comprehensive
earnings. Comprehensive earnings are the sum of earnings for the period plus
other comprehensive earnings.
    The new rules do not have a significant impact on the Fund's financial
statements.

    Outlook

    The Fund's cash inflows are entirely dependent on Westshore's operating
results and are significantly influenced by four variables: the volume of coal
shipped through the Terminal; the US dollar denominated price received by
Westshore's customers for that coal; the Canadian-US dollar exchange rate; and
Westshore's operating and administrative costs.
    Critical to Westshore's ongoing success will be the ability of the Coal
Partnership to maintain and increase its coal export volumes while competing
with other suppliers for sales worldwide. Based on information currently
available, Westshore anticipates throughput volume levels of 19 to 20 million
tonnes in 2007, at lower average loading rates, with the average loading rates
in the last six months of 2007 being lower than in the first six months.
    As announced in the Fording Canadian Coal Trust news release on July 30,
2007, the Coal Partnership has settled its customer contracts and this has
resulted in its average price for coal sales in the period April 1, 2007 to
March 31, 2008 to be approximately US$91 per tonne. This represents a
reduction of approximately 15% from the US dollar prices realized by the Coal
Partnership from the prior coal year. These prices represent sales for all
products, not only those exported through Westshore. These prices indicate
that Westshore's loading rate for tonnage shipped at a variable rate, and
hence its average loading rate, for the 2007/08 coal year will be lower than
for the 2006/07 coal year.
    For 2007 and based on current tonnage estimates as of the date of this
report, tonnages shipped at fixed rates are expected to account for
approximately 22% of the Terminal's throughput; tonnages shipped at variable
rates but subject to a cap, in effect for this year, are expected to account
for approximately 34% of throughput; and finally, tonnages shipped at full
variable rates are expected to account for approximately 44% of throughput at
the Terminal.
    Because of a combination of possible variations in tonnage, the US dollar
denominated coal price and exchange rates, it is not possible for the Fund to
predict accurately the level of its distributions for 2007. The second quarter
distribution was $0.25 per unit. If distributions for the calendar year 2007
exceed $1.035 per unit, incentive fees will be payable by Westshore to the
Manager under the Management Agreement, as was the case in 2006.
    There are many variables that will affect Westshore's earnings and the
Fund's distributions in 2007, most of which are outside the control of
Westshore or the Fund. The Fund has assessed the likely sensitivity of its
distributions, in respect of the remaining two quarters of 2007 as a whole, to
changes in tonnage shipped, the US dollar coal price and the US/Canadian
dollar exchange rate. Sensitivities for any other period would depend upon
assumptions that are considered appropriate and relevant at such time(s).
    The following sensitivities reflect the impact on the remaining two
quarters of 2007 and are based on existing contract provisions, assumed
aggregate tonnage for 2007 of 19.5 million tonnes, US dollar coal price
assumption of US$91 per tonne and exchange rates of US$0.95 per CDN$1.00:

    
    -  for every 1,000,000 tonnes difference in throughput, the effect on
       distributions by the Fund is expected to be approximately 6 cents
       per unit;

    -  for every US$5.00 change in the US dollar denominated coal price
       received by the Elk Valley Coal Partnership, the effect on
       distributions by the Fund is expected to be approximately 3 cents
       per unit; and

    -  for every US$0.02 change in the value of the Canadian dollar, the
       effect on distributions by the Fund is expected to be approximately
       1 cent per unit.
    

    The foregoing sensitivities factor in the anticipated effects of
Westshore's hedges currently in place but not the effect of any incentive fee
if distributions should exceed $1.035 per unit.

    Forward-looking Statements

    The foregoing statements concerning tonnages, coal prices, exchange
rates, loading rates and variability of distributions are forward-looking
statements but reflect the current expectations of the Fund and Westshore with
respect to future events and performance. Wherever used, the words "may,"
"will," "anticipate," "intend," "expect," "plan," "believe," and similar
expressions identify forward-looking statements. Forward-looking statements
should not be read as guarantees of future performance or results, and will
not necessarily be accurate indications of whether, or the times at which,
such performance or results will be achieved.
    Forward-looking statements are based on information available at the time
they are made, assumptions made by management, and management's good faith
belief with respect to future events, and are subject to the risks and
uncertainties outlined in the Fund's Annual Information Form that could cause
actual performance or results to differ materially from those reflected in the
forward-looking statements, historical results or current expectations.
    All forward-looking statements will be impacted by and are subject to the
risks set out under Risk Factors in the Fund's Annual Information Form.

    Additional Information

    Additional information relating to the Fund, including the Fund's latest
Annual Report and Annual Information Form, are available on SEDAR at
www.sedar.com and on Westshore's website at www.westshore.com.

    On behalf of the Trustees,

    (signed)
    William W. Stinson
    Chairman
    August 2, 2007



    
    The enclosed financial statements have not been reviewed by the Fund's or
Westshore's auditors.

    Consolidated Statements of Earnings, Comprehensive Earnings and
    Cumulative Earnings

    (in thousands of        Three months ended           Six months ended
     dollars, except             June 30                     June 30
     per unit amounts)              $                           $
                           2007          2006          2007          2006
    -------------------------------------------------------------------------
                        (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
    REVENUE
    Coal                    45,790        41,583        82,343        80,046
    Other                    2,370         2,869         3,428         3,727
    -------------------------------------------------------------------------
                            48,160        44,452        85,771        83,773
    EXPENSES
    Operating               17,906        15,256        35,019        30,995
    Administrative           1,583         2,577         3,530         4,316
    -------------------------------------------------------------------------
                            19,489        17,833        38,549        35,311
    -------------------------------------------------------------------------

    Earnings before
     depreciation and
     income taxes           28,671        26,619        47,222        48,462

    Depreciation             5,552         5,404        11,105        10,809
    -------------------------------------------------------------------------

    Earnings before
     income taxes           23,119        21,215        36,117        37,653

    Recovery of
     (provision for)
     income taxes           (6,589)            -        (6,589)            -
    -------------------------------------------------------------------------

    Net and
     comprehensive
     earnings for
     the period             16,530        21,215        29,528        37,653

    Cumulative
     earnings
     - Beginning of
      period               449,097       386,794       436,099       370,356
    -------------------------------------------------------------------------

    Cumulative
     earnings
     - End of period       465,627       408,009       465,627       408,009
    -------------------------------------------------------------------------

    Basic and diluted
     earnings per
     trust unit              0.223         0.301         0.398         0.535
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted
     average
     number of
     trust units
     outstanding        74,250,016     70,381,111   74,250,016    70,381,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Statements of Cash Flows

    (in thousands of        Three months ended           Six months ended
     dollars)                     June 30                     June 30
                                    $                           $
                            2007          2006          2007          2006
    -------------------------------------------------------------------------
                        (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
    Cash flows from
     operating activities
    Net earnings for the
     period                 16,530        21,215        29,528        37,653
      Items not affecting
       cash
        Unrealized losses
         (gains) on
         forward exchange
         contracts            (356)           32           973         1,757
        Depreciation         5,552         5,404        11,105        10,809
        Future income tax
         expense             6,589             -         6,589             -
        Decrease in
         deferred employee
         future benefits
         costs                 (46)         (512)         (185)         (203)
    -------------------------------------------------------------------------
                            28,269        26,139        48,010        50,016
    Increase in non-cash
     working capital        (4,229)       (6,864)       (5,667)       (9,938)
    -------------------------------------------------------------------------
                            24,040        19,275        42,343        40,078
    -------------------------------------------------------------------------
    Cash flows from
     financing activities
    Distributions paid to
     unitholders           (19,305)      (20,411)      (42,883)      (47,508)
    Issuance of units, net
     of share issuance
     costs                       -             -        40,430             -
    -------------------------------------------------------------------------
                           (19,305)      (20,411)       (2,453)      (47,508)
    -------------------------------------------------------------------------

    Cash flows from
     investing activities

    Additions to plant
     and equipment          (3,790)         (659)       (4,738)       (1,886)
    -------------------------------------------------------------------------
                            (3,790)         (659)       (4,738)       (1,886)
    -------------------------------------------------------------------------

    Increase (decrease) in
     cash and cash
     equivalents               945        (1,795)       35,152        (9,316)

    Cash and cash
     equivalents -
     Beginning of period    68,762        32,383        34,555        39,904
    -------------------------------------------------------------------------

    Cash and cash
     equivalents - End
     of period              69,707        30,588        69,707        30,588
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash
    flow information

    Cash received for
     interest                  710           482         1,090           715
    Income taxes paid
     (received)                  -          (166)            -           404
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Consolidated Balance Sheets                       June 30,   December 31,
    (in thousands of dollars)                           2007         2006
                                                         $            $
    -------------------------------------------------------------------------
                                                    (Unaudited)     (Audited)

    ASSETS
    Current assets
    Cash and cash equivalents                           69,707        34,555
    Accounts receivable                                 20,607        15,211
    Inventories                                          6,351         6,102
    Prepaid expenses                                     5,892         3,975
    Other assets                                           872         1,845
    -------------------------------------------------------------------------
                                                       103,429        61,668
    -------------------------------------------------------------------------

    Plant and equipment
    At cost                                            471,570       466,831
    Accumulated depreciation                          (353,311)     (342,205)
    -------------------------------------------------------------------------
                                                       118,259       124,626
    -------------------------------------------------------------------------


    Employee future benefits                            21,080        19,907
    Goodwill                                           365,541       365,541
    -------------------------------------------------------------------------

                                                       608,309       571,762
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES & UNITHOLDERS' EQUITY
    Current liabilities
    Accounts payable and accrued liabilities            19,262        17,367
    Distribution payable to unitholders                 18,563        23,578
    -------------------------------------------------------------------------
                                                        37,825        40,945

    Employee future benefits                            18,748        17,760
    Future income taxes                                  6,589             -
    -------------------------------------------------------------------------
                                                        63,162        58,705
    -------------------------------------------------------------------------
    Unitholders' Equity
    Capital contributions                              704,032       663,602
    Cumulative earnings                                465,627       436,099
    Cumulative distributions declared                 (624,512)     (586,644)
    -------------------------------------------------------------------------
                                                       545,147       513,057
    -------------------------------------------------------------------------

                                                       608,309       571,762
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Notes to Financial Statements

    1.  Basis of presentation

        These interim financial statements do not contain all the information
        required for annual financial statements and should be read in
        conjunction with the financial statements and notes included in the
        Fund's Annual Report for the year ended December 31, 2006. These
        interim financial statements have not been audited or reviewed by
        external auditors.

    2.  Significant accounting policies

        These interim financial statements have been prepared in accordance
        with Canadian generally accepted accounting principles and follow the
        same accounting principles and methods of application as set out in
        Note 2 of the Fund's annual financial statements for the year ended
        December 31, 2006.

    3.  Financial Instruments

        Effective January 1, 2007, the Fund adopted the new accounting
        standards issued by the Canadian Institute of Chartered Accountants
        for financial instruments, hedges and comprehensive earnings. The
        recommendations required the Fund to account for derivatives and
        financial assets held for trading or available for sale at fair
        values. Loans, receivables and investments held to maturity are
        measured at amortized cost using the effective interest rate method.
        Other financial liabilities will be measured at fair value or at
        amortized cost using the effective interest rate method. The
        effective interest rate method establishes the discount rate which
        equates the estimated future cash flows with the net carrying amount
        of the financial asset or liability.

        Other comprehensive earnings is the method used to record revenue,
        expenses, gains and losses on net financial assets that are not
        required to be included in earnings. Foreign currency translation
        gains and losses on self-sustaining foreign operations will be
        included in other comprehensive earnings. Comprehensive earnings are
        the sum of earnings (loss) for the period plus other comprehensive
        earnings (loss).

        The new rules do not have a significant impact on the Fund's
        financial statements.

    4.  Employee future benefits

                            Three months ended           Six months ended
                                 June 30                     June 30
                            2007          2006          2007          2006
        ---------------------------------------------------------------------
                        (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)

        Pension plan
         benefits         $   (587)     $   (763)     $ (1,173)     $ (1,018)
        Other retirement
         and post-
         employment
         benefits              541           251           988           815
        ---------------------------------------------------------------------

        Employee future
         benefits recovery     (46)     $   (512)         (185)     $   (203)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
    





For further information:

For further information: Nick Desmarais, Secretary, (604) 488-5295


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